Global Economy Faces Risk Of Deflation
$OIL
The 2% inflation target that the world’s most Key central banks regard as the Golden Scenario for consumer prices looks less and less likely to be achieved any time soon in many countries including the US.
And with Crude Oil hanging in at about 46 bbl on a supply glut, the biggest decline in food prices in almost 7 years suggests the risk of deflation is growing.
The United Nations compiles an index of 73 food prices.
That index has fallen for 10 months running, and figures released Thursday show the measure dropped by 5.2% last month. Food prices have now declined 35% from their peak in February 2011 according to the data.
Embedded in the data are a 7% drop in cereals, an 8.6% decline in vegetable oil and a 9.1% fall in dairy prices. While cheap food is a godsend to consumers, especially in poorer nations, it is a disaster for those countries that depend upon selling foodstuffs for income.
Also, it is bad news for central banks concerned that declining prices may lead to deflation, defined as a sustained period of falling consumer prices. Inflation is running at an annual pace of just 0.2% in the US, Germany, France, Italy and Japan.
And Spain, Switzerland, Sweden, Singapore, Poland and Finland are all experiencing deflation.
The only places in the world where there is any inflation is in Chinese pork prices, which climbed almost 20% in August from a year earlier. This is not an environment in which the Fed should be considering raising interest rates aka borrowing costs.
Stay tuned…
HeffX-LTN
Paul Ebeling
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